Time Warner Cable reels in Insight for $3B in cash

Time Warner Cable has landed Insight Communications for $3 billion in cash, which will bolster its presence in the Midwest once the deal closes.

Time Warner Cable emerged as the winner of Insight after a failed auction and months of negotiations. According to past media reports, Cablevision, Mediacom Communications, WideOpenWest and Charter Communications kicked the tires on Insight.

The definitive merger agreement needs to pass regulatory muster before closing; Time Warner Cable expects the deal to be wrapped up in the first half of next year.

Insight, the nation's ninth-largest cable operator, is majority-owned by The Carlyle Group. Carlyle was reportedly seeking $3.5 billion to $4 billion for Insight, but a story by Reuters said Time Warner Cable dropped out of the earlier auction because it felt the price was too high.

Time Warner Cable has been on a buying spree as of late. In June, it paid $260 million for NewWave Communications. Prior to this year's deals, Time Warner Cable's last major acquisition was in 2006 when it split up the former Adelphia systems with Comcast.

Led by co-founder, vice chairman and CEO Michael Willner, who was inducted into the Cable Broadcasting & Cable Hall of Fame in 2005, Insight serves more than 750,000 customers in Indiana, Kentucky and Ohio, which made it a good fit with Time Warner Cable systems in Kentucky, Ohio and Indiana.

"We believe in our business and its long-term prospects and have long thought that Insight's well-run, technologically advanced systems would fit well with our Midwest operations. With the deal announced today, we are able to acquire those systems at an attractive price that is consistent with both our disciplined approach to M&A and our capital allocation strategy," said Glenn Britt, chairman and CEO of Time Warner Cable. "We look forward to serving these customers, welcoming Insight employees to the Time Warner Cable team and building on Insight's successes."

"We're excited. It's a good acquisition for us," Time Warner Cable spokesman Justin Venech said this morning. "One of the things we found very attractive about this is that Insight is a well-run business. It has invested in digital conversion and DOCSIS 3.0 deployments, so a lot of that capex has been done already. What we see is well-run, advanced systems that fit well with our Midwest footprint. It's a good fit for us."

Time Warner Cable said it believes that the deal, after incurring one-time costs and capital expenditures, will create annual cost efficiencies of approximately $100 million through programming expense savings and other cost reductions. The company expects to realize the bulk of the savings within two years of closing.

"Taking into account Insight's recent performance, $300 million in NOL value, the anticipated net cost synergies and lower capital intensity, this acquisition presents an attractive opportunity to enhance TWC shareholder value. With these benefits, the purchase price multiple is favorable to current TWC and peer average trading multiples," said Irene Esteves, CFO of Time Warner Cable.

With Insight's digital conversion and DOCSIS 3.0 rollout largely completed, Time Warner Cable expects Insight will have lower capital requirements of 10 percent to 12 percent of revenues upon completion of the acquisition.

Venech said Time Warner Cable would continue to pay dividends to shareholders, as well as keep its share repurchase program.

"With this acquisition, we don't feel there are any other large system acquisitions that fit right now," he said.

In addition to The Carlyle Group, Insight is currently owned by Crestview Partners, MidOcean Partners, members of the Insight management team and others. Carlyle and Insight management took the company private in December 2005, and Crestview and MidOcean purchased a significant stake in the company last year.

"For more than 25 years, Insight has provided our customers with unparalleled service and an unwavering commitment to excellence," said Willner." We are extremely proud of the investment we've made to transform our cable systems into one of the leading telecommunications platforms in the nation. Given their industry-leading position and depth of resources, we expect that Time Warner Cable will continue building on the advancements our tremendous employees have made while providing outstanding service to our customers. The communities we serve could not be in better hands than with Time Warner Cable, which already operates in this region and is widely regarded as one of the most respected technology companies in the world."

Time Warner Cable and Insight said they would work together to provide a smooth transition for both customers and employees.